While it popular to say that the Chinese economy is unbalanced, it seems not convincing and rational basis has been presented to put it beyond dispute or doubt, except to use the facts of China has surplus in trade and its investment/consumption shares are high/low.

What economic models would demonstrate that balanced trade is always optimal and that a lower/higher investment/consumption are always optimal over the course of economic development and when people and nations clearly can have different preferences?

Let’s look at some of the arguments in this article. It argues “Although the non-state sector accounted for the majority of industrial output in 2007, the SOEs accounted for more than 53 per cent of non-agricultural fixed investment while employing only 13 per cent of the total workforce. These discrepancies reflect the fact that SOEs operate in capital-intensive heavy industries. But they also suggest an inefficient allocation of capital across sectors and underline that there are still large distortions in China’s factor markets.”

Even though it is acknowledged the influences of capital intensity on investment needs, it simply states that they also suggest inefficiencies in capital allocation without supporting materials/facts. Further it does not mention the role of the grey or underground banking and finance sector in providing capitals to non SOEs and its relative importance. Without those facts how the reader can be sure the argument is correct?

The article also argues the potential effect of a reform to the Hu Kou system on consumption. Although it mentions urbanisation will require investment but it does not present the fact of which effect is greater. Without those facts the reader is left wondering whether the argument is sound or not. Besides, urbanisation has different models and it does not necessarily mean that all people will need to move to mega-cities.

It is also puzzling that it has been argued that the Hu Kou system has resulted in lower wages for migration workers while no mention of the effects of excess supply of rural migration workers.On this particular point, whether the low wages of rural migration workers were the effects of the labor market with relatively unlimited labor supply or whether it was due to the Hu Kou system, most economists would likely to argue it was the former rather than the latter.